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Will JSE’s Proposed Forex Instruments Affect VFEX Momentum?

Africa’s largest stock market, the Johannesburg Stock Exchange (JSE) Limited recently announced plans to list instruments across a range of currencies including the US dollar (USD) as part of its raft of proposals aimed at positioning itself as a center of capital-raising on the continent.

The development coincides with the opening of Zimbabwe Stock Exchange (ZSE)’s secondary bourse, the Victoria Falls Stock Exchange (VFEX) -denominated in USD currency and also seeking to lure regional and international investors to become the continent’s offshore financial center.

While JSE’s proposals are subject to regulators’ approval, the idea to create listings in USD currency by both the JSE and ZSE is no surprise given the volatility of their respective currencies during the course of the current year, worsened by the Covid-19 pandemic.

From 1 January 2020 to 1 April 2020, the South African Rand lost (21.4%) versus the USD, (20.2%) against the EUR and (16.3%) versus the British Pound.

Even worse, the Zimbabwean dollar (ZWL) in January this year was valued at ZWL$ 17 against the USD and 10 months on to date, its stands at ZWL$ 81/USD.

As a result, the ZSE has seen external investors fleeing due to currency devaluation and low market sentiment while the USD –quoted-VFEX is seen as an alternative because of the stability of the currency.

A substantial number of conglomerates have expressed interest in the VFEX and most notably has been Seedco International, PPC and Old Mutual which were earlier suspended from the ZSE due to the fungibility of their shares.

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But the biggest question is whether the VFEX will live up to the hype now that the continent’s largest exchange (JSE) is mooting similar offerings.

“SA has embarked on a process of modernizing its exchange control standards in line with international best practice. These reforms will go a long way in positioning SA as a competitive investment destination, opening the door for increased international investment and laying the foundation to securing OECD [Organisation for Economic Co-operation and Development] status for SA,” JSE CEO Leila Fourie was quoted by South African media earlier this week.

For starters, the JSE is a far much attractive brand for investors willing to invest in Africa with a market capitalization of 17 trillion Rand (US$ 1 trillion) and even in the Rand currency, it remains a stable market.

In contrast, the ZSE’s market capitalization stands at a distant ZWL$ 181 billion (US$ 2.2 billion) yet the currency remains volatile worsened by reckless political interferences in its operations which are a disservice to the VFEX attractiveness.

Worse still, Zimbabwe is struggling with timely repatriation of dividends to external investors and suffers a negative country perception.

Perhaps this explains why to date, there is still only one company listed on the VFEX – Seedco International.

“The planned securities listing and vision to position Johannesburg as a financial capital in Africa (more so in Sub Saharan Africa) will definitely deflate VFEX. Remember capital has the same rules on repatriation of dividends, property rights & rule of law. Zimbabwe’s tainted past of weaknesses in all the 3 key aspects will inevitably favor Johannesburg,” stock market expert, Victor Bhoroma told 263Chat Business.

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“At the moment, an average of 35% of the trade value on the JSE comes from foreign investors every month & this amounts to more than US$7 billion. Compare that with less than US$1 million from foreign investors on the ZSE & you will realize that Zimbabwe has serious challenges as a global capital investment destination,” he added.

The political command to stop trade on the ZSE and a unilateral suspension of Old Mutual, Seedco & PPC put a final nail on the country’s securities markets, experts warn.

“We may not see any serious investment on the VFEX under the current government policies.The monetary policy inconsistency has also dented hopes for serious investment on the VFEX,” said Bhoroma.

Whether or not the VFEX will hold its own against a regional giant offering  the same USD quoted instruments next door, it remains to be seen but as it stands, the country’s monetary authorities need to instill confidence back into the monetary system before investors flock in.


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